How DoD Policy Affects Private Expenditure on Independent Research and Development

This Note uses economic models and concepts to analyze the incentive effects of the Defense Department's (DoD's) policy on independent research and development (IR&D). IR&D is research and development conducted by contractors out of their own resources, a portion of which is later reimbursed by DoD. The Note compares the empirical results of three studies that consider the ways in which DoD policy affects the level of private spending on IR&D. In particular, it compares the varying methods, assumptions, and datasets used in these studies to determine how consistent their results are and, when taken together, what they can tell policymakers about the likely effects of changes in IR&D policy. The findings indicate that currently available empirical studies do not allow policymakers to predict how policy changes would affect private investment in IR&D.